Wednesday, April 21, 2010
What Goldman taketh away, Goldman giveth. That appears to be the motto of the past few days, with Fraudulent Friday now a distant memory as the market basks in the warm glow of yet another solid quarter from the good ship GS.
Obviously, the financial sector generally has been helped by favourable market conditions, which have boosted sellside trading revenues (if not, alas, the performance of your average macro directional punter.) And in fairness to GS, their effective tax rate of 33% was no doubt higher than that of many of their most strident critics. No more 1% tax rate bonanzas in this environment!
Still....Macro Man has to wonder if we're now at the top for financials, whether the tide is high and set to roll back out. Over the past year, the SPX has returned 42%....a handsome return, to be sure, but trounced by the financial sector's nearly 58%.
Friday's SEC announcement was perhaps only the opening salvo of a popular and regulatory backlash, however. The Obama administration is clearly aiming to wheel out some sort of financial reform package, no matter how flawed, to parade in front of voters ahead of midterm elections.
In the UK, meanwhile, Greedy BankersTM are about the only subject on which Moe, Larry, and Curly can agree. It's not a question of whether to tax Greedy BankersTM back to the Stone Age.....it's how.
And now, enter the IMF. Tired of waiting for that phone call from Athens and too timid to take on the challenge of international currency politics, the Fund has now proposed a suite of broad-sweeping financial levies and taxation. While the IMF's call for universal compliance is unlikely to be met (check out the history of OPEC compliance, for example), it nevertheless offers a strong suggestion that after more than two years of being on the receiving end of public largesse, the financial sector (and banks in particular) may now face pressure to become net contributors.
In this context, Macro Man really has to wonder how much longer XLF outperformance can be sustained. Not that the news is all doom and gloom. At least Goldman's Board can sleep soundly at night, knowing that they're protected from shareholder lawsuits by none other than AIG. Ah, the sweet taste of irony......